NetEase Q3 Misses Estimates On Rising Costs, Lower Revs; Shares Slide

By Reshma Kapadia

Chinese Internet gaming firm NetEase(NTES) posted third quarter sales of $318.5 million and profits of $129 million, or 98 cents an ADS, versus analysts’ estimates of $1.07 a share that disappointed analysts, adding to the recent flow of pessimism from the sector. The company’s ADS was down 5.6% at $47.48 in morning trading.

The company’s operating margin came in at the lowest in a decade amid the quarter’s marketing and promotional activity and research and development expenses, Citi analyst Muzhi Li writes.

On the good news front, Netease announced a $1 a share special dividend and said its board approved a $100 million share buyback plan.

Citi’s Muzhi Li cut the firm’s price target by 8% on the company to $56.80, noting increased product risks, shortened game life cycles and the “weakening cost structure” but retained a neutral rating.

Li adds: “We believe Netease is beginning to face gamer fatigue between product cycles whereas game sales increasingly depend on the launch of new games or expansion packs.”

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Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. Barrons.com’s Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools. She studies multiple languages and photography.